Comcast jumps 11.4% on Q1 results

No. 3 cable operator lifts all boats in battered sector

By

DavidB. Wilkerson

PHILADELPHIA (CBS.MW) - Shares of cable operator Comcast Communications rose more than 11 percent Wednesday after it reported higher revenue than that of a year ago, surpassing Wall Street's average revenue target.

The No. 3 player in the industry, which will become its largest upon completion of its $72 billion buy of AT&T's
T, -0.10%
cable unit, helped send other stocks in the cable sector higher.

The company also indicated that customer demand for its digital services is far greater than expected, and that revenue at its QVC home shopping network continues to be robust although the economy has not fully recovered.

Revenue rose to $2.673 billion from $2.3 billion; Analysts surveyed by Thomson Financial/First Call had forecast a total of $2.58 billion.

Comcast said it lost $89 million, or 9 cents a share, compared with a deficit of $1 billion, or $1.04, in the year-ago period. The previous-year figure includes a $385.4 million charge related to an assessment of certain intangible assets under new accounting rules. Respondents to First Call were expecting a profit of 10 cents a share in the most recent period.

Long-term debt stood at $11.36 billion at the end of the quarter, compared to $11.7 billion at the end of last year's fourth period. Cable companies have seen their stocks crumble by more than 40 percent this year, partially on concerns that they carry too much debt.

During a conference call with analysts, John Alchin, the company's treasurer, said Comcast has secured a $12.8 billion credit line that will help it pay for the AT&T cable unit.

Also on the subject of the AT&T deal, Comcast President Brian Roberts admitted that the company was "obviously disappointed" by sluggish subscriber numbers at AT&T Broadband. But AT&T seems "ready to begin the hard work" of cost-cutting, rebuilding its customer service effort, and rebuilding its network to get its cable plant up to the level Comcast has reached, he said. "The most important metric is the network rebuild ... that seems to be what's differentiating it from [other cable providers]," he said. "[That means] not just system reliability, but competitiveness..."

Operating cash flow climbed to $808.2 million from $634.2 million.

Steve Burke, president of Comcast Cable, said the company has done well to handle its key challenges going into the period, among them a slowing advertising environment and the necessity of switching customers to its own in-house high-speed Internet service after last year's collapse of ExciteAtHome.

"We're in much stronger shape than we thought we would be when we put our budget together," Burke said. Advertising sales rose 13 percent during the period, and Burke says positive trends in that area are continuing.

Subscribers up

Comcast added 203,700 digital cable subscribers in the period, or about 15,600 a week. The company finished the quarter with 2.54 million digital subscribers, representing a 51-percent increase over the year-ago total when including systems Comcast has owned at least a year.

The company added 92,400 high-speed Internet subscribers to its rolls, bringing its total to 1.041 million at the end of the quarter.

Demand for digital products was "much stronger than we expected," said Alchin.

Burke says Comcast's strategy is to prevent any leveling off of digital subscriber additions by making an increasingly strong push for video-on-demand. Comcast hopes to make VOD available to around 6 million homes by the end of 2002.

Roberts says Comcast wants to make new movies available on VOD within a time frame similar to that of home video and DVD. The company wants to work with movie studios on possible cable-only specials and other unique items, and sees similar opportunities to repurpose broadcast network content.

For instance, Roberts said, the cable operator might allow viewers to watch a program like CBS' "60 Minutes" sometime after its usual Sunday night airing, thereby enabling the sale of additional advertising time and boosting overall viewership of the show for CBS. The show would be offered at no additional charge for digital subscribers, Roberts explained. "We want to get people used to pushing a button and getting [instant] content," he said, and during that learning phase the service can be free. When the demand is sufficiently in place, Comcast can then charge and pick up additional revenue with it.

Comcast expects to have a 5 to 6 percent increase in basic cable rates, in line with its recent average.

Roberts noted that the low valuations of cable stocks are ironic. "We have the highest revenue and highest cash flow we've had in the last five years," he said, reiterating that new services have gained wider acceptance than Comcast had anticipated.

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